Big drop in US import market

The US cattle and beef markets remained in a state of flux this week, with the livestock end of the chain reclaiming some of the ground it lost over the past two months, while the wholesale meat end accelerated its decline.

The imported 90CL cow beef indicator, collated by the Steiner Consulting Group in their weekly report for MLA, dropped 13US¢, this week, to 210US¢/lb CIF – the largest single weekly drop in price since February this year. In A$ terms, the indicator dropped 48.3A¢, to 634.3A¢/kg CIF. This is the lowest it has been since the end of February, but is still over 100A¢/kg higher than any time before July 2014 (prices available from August 1993).

Importers and end users are reporting that the beef market is still overbought, and exporters are having to offer lower prices to move product. There are also suggestions that beef being purchased for delivery in January is cheaper still, even under 200US¢/lb CIF.

Is there anything making the market more volatile than normal?

There is some speculation in the US that, even though there was a short-term oversupply of cattle and beef in the market, the drop in prices far outweighed what the fundamental market forces would have suggested. For example, the live cattle future for October 2015 dropped around 20US¢/lb through September, including 10US¢/lb in the last week of the month, but has already regained 13US¢/lb so far in October.

One of the reasons put forward by The Beef Read is the prominence of high frequency trading in the relatively small volume cattle futures market. The formulas used in computerised trading react faster than human traders, and can often cause one to follow the other before a reversal, as has occurred this October. This is by no means the only reason for the volatility, but an extra contributor.